What is auto insurance?
An auto insurance policy is a contract between you and an insurance
company. You pay a premium. In exchange, the insurance company
promises to pay for specific car-related financial losses, within the
selected coverage limits, that you may have during the term of the
agreement.
Most states require that you carry automobile liability insurance in
certain minimum amounts. If you are at fault in an accident the law
requires that you pay the damages sustained by the person who is not at
fault. These can include property damage, which is the cost to repair
or replace any property that you have damaged. These can also include
damages for personal injuries, which include not only the other person’s
medical expenses and lost wages but also damages for pain and
suffering, permanent injury, and loss of enjoyment of life. These
damages can come to thousands of dollars even for a minor accident.
That’s why adequate insurance is essential to your economic health.
What is no fault insurance?
In states with no-fault insurance victims of automobile accidents
are compensated by their own insurance company, regardless of who caused
the accident. No attempt is made to determine fault. This is
different from the traditional insurance coverage where the party at
fault is primarily responsible for paying the costs of an accident,
either individually or through his or her insurance company. In certain
circumstances, though, victims can sue the other party; the limitations
vary among no-fault states.
No fault programs are designed to reduce the cost of auto insurance
by reducing claims and litigation. About one-half of the states have
enacted some type of no fault or auto insurance reform legislation.
No-fault insurance laws vary widely, so you should check with your
insurance commissioner’s office or an insurance agent for requirements
in your state. If part of your coverage is based on no-fault laws, find
out if it covers you when you drive in other states.
What are the various types of auto insurance coverage?
The standard private passenger automobile insurance policy affords
up to four types of coverage. These coverages include: Liability
Coverage, Medical Payments Coverage, Uninsured Motorist Coverage
(Underinsured Motorist Coverage) and Coverage for Damage to Your Auto
(Comprehensive and Collision).
Liability coverage protects you from property damage or personal
injury claims arising out of the ownership, maintenance or use of a
covered automobile. Unless specifically restricted by your policy, you
will have coverage while driving any car, pickup, or van so long as you
have the owner’s permission to use the vehicle. A person who is using
your car, pickup, or van with your permission will also be covered. At
the time the policy is issued you will choose the limits of liability
that you want. The limits that you select are the most that we will pay
in the event of a loss.
Medical payments coverage pays for medical expenses that you, or a
family member, incur as the result of an automobile accident. It also
covers persons who are occupying a covered automobile. At the time the
policy is issued you will choose a coverage limit. The limits that you
select are the most that will be paid for each person in connection with
a single accident.
Even though liability coverage is advisable and often required, there
are many irresponsible people who do not buy insurance. If an
uninsured motorist causes an accident you will not be able to recover
any damages that you sustain. If you purchase uninsured motorist
insurance, though, your insurance company will pay you for the property
damage and bodily injury caused by an uninsured motorist. It will cover
you, any family member, and anyone occupying a covered automobile. The
limits for this coverage are usually the same limits that you selected
for liability, although you can choose lower limits.
There are also times when a person who causes an accident has
liability insurance but your damages exceed the limits of that person’s
coverage. In some states underinsured motorist coverage is included in
your uninsured motorist coverage. In other states, you can purchase
underinsured motorist insurance which covers your excess losses up to
the limit set forth in the policy.
If you have comprehensive and collision coverage, the insurance
company will pay for damage to a covered automobile regardless of
fault. Most banks and finance companies require you to maintain
comprehensive and collision coverage on your car if it is financed.
What is liability coverage?
Liability coverage extends to you, your spouse, and any resident
family member for the ownership, maintenance, or use of any car, pickup,
or van unless specifically restricted by your policy. Most state laws
require that you carry a minimum amount of liability insurance, which
pays for injuries or damages you cause to someone else. (We recommend
that you carry much more than the minimum - enough to protect all your
assets.)
What should I do when renting a car?
The answer to this question is not as easy as it once was. In the
not-too-distant past, most automobile insurance policies would extend
coverage to rental cars whenever you rented one. This is not quite true
anymore and coverages now vary widely from company to company and from
state to state. The best way to find out what rental car coverage you
have under your automobile policy is to call your insurance company or
your agent.
What is the difference between comprehensive and collision coverage?
Collision is defined as losses you incur when your automobile
collides with another car or object. For example, if you hit a car in a
parking lot, the damages to your car will be paid under your collision
coverage.
Comprehensive provides coverage for most other direct physical damage
losses you could incur. For example, damage to your car from a
hailstorm will be covered under your comprehensive coverage.
Suppose I lend my car to a friend: is he/she covered under my automobile insurance policy?
It depends on your coverage. There are several instances where
coverage would not apply to anyone else driving your car (named owner
policies, restricted policies, etc). However, most of the time when you
knowingly loan your car to a friend or an associate, he or she will be
covered under your automobile insurance policy.
